Australia, NZ dollars resilient to jitters over Brexit

[SYDNEY] Australian and New Zealand dollars held their ground on Tuesday as their relatively high yielding interest rates largely offset a bout of risk aversion ahead of the UK referendum.

The Australian dollar edged up to 74 US cents, from US$0.7388 early. It remained within reach of a peak of US$0.7505 touched last week when the Reserve Bank of Australia (RBA) appeared less dovish than some had expected.

The central bank kept rates at a record low of 1.75 per cent at its monthly policy meeting.

Underpinning the Aussie was a private survey showing Australian business conditions remaining elevated, supporting the case for the central bank to hold off on any cuts in interest rates.

Support was found at US$0.7357.

The Aussie has proved resilient to demand for safe-haven assets like the yen and government bonds on mounting worries about Britain possibly leaving the European Union.

"Risk off continues to dominate markets with a number of Brexit polls driving volatility. The AUD held up well despite the spike in volatility," said ANZ in a note.

Aussie resilience was largely due to the country's attractive bond yields even though they have also fallen recently. Australia's two-year bonds pay 1.6 per cent, but that is still eye-popping compared with near zero in Japan and the negative yields of Germany and France.

Ten-year yields hit a record low of 2.1 per cent.

The Aussie was nursing heavy losses against the yen at 78.29 , pulling closer to this year's trough of 77.57. A break under would take it to a four-year low.

Across the Tasman sea, the New Zealand dollar edged down to US$0.7045 from US$0.7062 due to risk aversion over the growing possibility of a British exit from the European Union.

Most of the Kiwi's fate in the coming week would rest on whether the Federal Reserve raises interest rates at its meeting on Wednesday.

Investors were also looking ahead to Thursday for insight into how the New Zealand economy was going with the release of GDP data and an auction setting global dairy prices.

New Zealand government bonds gained, sending yields one basis point lower at the short end of the curve and two basis points lower at the long end.

Australian government bond futures held firm, with the three-year bond contract up one tick at 98.440. The 10-year contract also edged up one tick to 97.9350, having scaled a fresh record peak of 97.9500.

The 20-year contract added 0.75 tick to 97.3375.

The premium between 10-year and three-year bonds shrank to 52 basis points, the thinnest in a year.

REUTERS